Over the past three decades, microfinance has given millions of people access to financial services for the first time. As such, it’s exciting to watch how mobile money providers and microfinance institutions are starting to work together to improve further the quality and range of financial services available to the poor. It’s becoming increasingly clear that the assets and capabilities of microfinance institutions and mobile money service providers are complementary; we see three specific kinds of collaboration:
1. Distributing cash and electronic value using MFI infrastructure: In many markets, mobile money service providers are appointing the branches of microfinance institutions as cash-in/cash-out agents. There are real synergies here: MFI branches are typically more secure that other retail outlets, are staffed with people who are trained in cash handling, and maintain float in the course of doing business-plus, it’s faster for operators to sign up one MFI with many branches than many independent shops. In addition to a new revenue stream, the MFI gains foot traffic and the opportunity to cross-sell mobile money customers on microfinance.
2. Disbursing microloans and accepting repayments on mobile payment systems: In other cases, microfinance institutions are discovering that they can lower their costs by disbursing loans and/or receiving repayments via mobile money, eliminating some of the administrative costs that they incur in the field and the back office. Some of these cost savings can be passed on to the customer; in Afghanistan, borrowers from First MicroFinanceBank who agree to receive and repay their loans using M-Paisa qualify for a reduced interest rate. But customers enjoy other benefits, too, which may actually be more important to them: it is safer to take out and repay microloans in mobile money rather than cash, and it saves time. For the provider of mobile money service, partnering with an MFI with a large number of borrowers in this way can be a way to rapidly sign up new customers and drive usage of mobile money. However, it is a significant operational challenge to integrate the systems
3. Meeting mobile money agents’ demand for capital with microfinance: Often, new mobile money agents have to raise capital to invest in cash and/or electronic value float. One way to get it is to take out a microloan. From the perspective of the MFI, this kind of loan is relatively low risk, since the principal is preserved in highly liquid form and repayments are made from the commission stream earned by the agent. I suspect that many mobile money agents around the world have financed their cash and electronic value float with microcredit. But more formal loan products could be tailored to exploit this opportunity. In one country, a mobile operator and MFI have teamed up to help microentrepreneurs open small stores that sell airtime: The MFI provides upfront capital as well as a revolving line of credit for times when the entrepreneur runs short of cash or airtime. It’s interesting to imagine a loan facility that addresses the particular liquidity requirements and cash flows of mobile money agents; if mobile money turns out to be as successful in other parts of the world as it is in Kenya, there could be significant demand for such an offering.
Thanks to Cameron Goldie Goldie-Scot at Musoni for discussing the content of this post.